American Water Works Company’s (AWK - Free Report) subsidiary Indiana American Water recently announced the acquisition of the Town of Sheridan’s water and wastewater systems in central Indiana for a total purchase consideration of $10.75 million. The buyout was approved by the Indiana Utility Regulatory Commission in September and the deal was closed by both companies in December.
Currently, Sheridan systems serve approximately 60,000 residents. The transaction will add more than 2,500 water and wastewater customers to the company’s client base, representing a population of above 3,000 residents.
American Water Works’ Growth Strategy
In 2018, the company’s planned investment is envisioned in the range of $1.9-$2.1 billion for capital expenditures and acquisitions including the $365-million buyout of Pivotal Home Solution operation from The Southern Company’s (SO - Free Report) subsidiary, Southern Company Gas.
Consolidation is the need of the hour in the fragmented U.S. water utility space. To this end, the company is expanding its customer base through organic initiatives and integrations. In 2017, the company added 15,000 customers through organic growth and 39,514 via acquisitions. American Water Works continues to fortify its market footprint through strategic acquisitions. Till September 2018, the company added 7,600 customers through buyouts and 8,900, organically. On completion of the pending takeovers, nearly 56,000 are expected to be included in its customer base. Such takeovers should boost the company’s top line significantly.
Merger & Acquisition Activity in Utility Water Space
Utility sector operators engage in frequent merger and acquisition (M&A) activities to supplement organic growth. In addition to lending their operations a greater scale and scope, such favorable measures lead to cost synergies and better utilization of resources. The larger the companies are, the more access they get to capital resources, essential for vital infrastructure upgrades. The latest buyout by American Water Works seems to be driven by this agenda.
Keeping with this trend, earlier this year, Connecticut Water Service received an offer from SJW Group (SJW - Free Report) to merge with the latter. Finally, on Nov 16, 2018, shareholders of Connecticut Water Service approved the proposed merger with the SJW Group.
Also, recently, Global Water Resources (GWRS - Free Report) completed the acquisition of Red Rock Utilities, a provider of water and wastewater services in the Pinal and Pima counties of Arizona.
In a year’s time, shares of American Water Works have inched up 0.7% against the industry’s decline of 4%.
Currently, American Water Works has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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